A a development economist with expertise in political economy analysis, Dr Neil McCulloch, has advocated a six-point strategic approach that could help in improve Nigeria’s tax system, especially increasing the non-oil tax revenue collections as a ratio of GDP for development.
McCulloch set the fiscal agenda at the panel session on “Leveraging Domestic Resource Mobilization for Sustainable Development in Nigeria” at the just concluded 24th Nigeria Economic Summit in Abuja.
The expert in his presentation at the forum shared an interesting presentation on six global lessons on tax for the Nigerian context.
Specifically, McCullock, who is also the Principal, Policy Practice, pointed out that the first lebe taxed, especially from the personal income tax, as most African countries have been making collections from P.A.Y.E.
From the presentation, he demonstrated that most rich people don’t pay personal income tax, with just only 35% of lawyers in Uganda paid PIT; only 5% of company directors in Uganda paid PIT; and PIT accounting for a mere two percent of revenue in Sub-Saharan Africa as against the 10% in OECD.
The expert pointed out that effective, well-resourced teams dedicated to High Net Worth Individuals (HNWIs) can yield dramatic returns as was the case in Zambia and Tanzania where reforms delivered benefit: cost ratios of 10:1 and 100:1
The second lesson he advised that Nigeria and other sub-Sahara African countries should learn from was the need for their governments to minimize tax exemptions.
Currently, he noted that exemptions remained large and significantly reduce tax take, pointing out that in six African countries, exemptions were 33% of total tax while a study conducted in seven countries showed that 84% of investors said that tax exemptions didn’t affect their decision.
While admitting that there are legitimate strategic reasons for exemptions, McCulloch maintained, however, that exemptions ned, however, that exemptions should be based on clear criteria and agreed, guided by transparent procedures, allowed through a single channel; time limits should be placed on all exemptions; monitoring their use and effects, ideally transparently as part of annual budget; and be registered with tax administration.
The third lesson advocated by the expert was that African governments needed to reduce tax expenditures,since where a revenue collecting authority spends the revenue before remitting to the government can be very large, sometimes bigger than whole categories of tax.
He explained that globally, largest tax expenditures by far are associated with fuel subsidies which is estimated globally around $105 billion annually with fuel subsidies estimated around two-thirds of CIT in Nigeria.
Expatiating further that electricity subsidies are about globally $107 billion annually, McCulloch pointed out further that as with exemptions, tax expenditures should be stated in the budget, and monitored and evaluated for effectiveness and value for money.
On the issue of property tax administration, he explained that property taxes had the potential to raises significant sums due to rapidly rising value of urban real estate, accounting for 1-2% of GDP in OECD and probably around 0.1-0.2% of GDP in Sub-Saharan Africa
The development expert maintained that if properly administered, property taxes are progressive, adding that in order to optimize the revenues from property taxes, there is the need to simplify and professionalise the valuation of properties
On the fifth lesson that Nigeria and other governments in Sub-Saharan Africa should learn from, he advised on the need for investment in better tax administration in view of the fact that improvements in the quality of tax administration can yield big improvements in revenue
To achieve this, McCulloch advocated capacity building through well trained staff, with good databases and tools; coordination and cooperation between tax authorities, government departments, and utilities, corporate registries, banks/credit card; and companies.
In addition, he harped on the need for cleanliness by ensuring that staff are not enriching themselves; and comparison through the use of the Tax Administration Diagnostic Assessment Tool (TADAT) from African Tax Administration Forum (ATAF).
Finally, McCulloch urged the governments to be fair – and deliver since voluntary compliance is closely related to trust and reciprocity; ensure that tax revenue is used to deliver services that people value such as on health, education, water, roads and electricity.
The analyst explained that fairness could be explained within it distributional context, which implies that the rich are taxed more than the poor, horizontal: different groups should be treated equally; geographical: different regions should be treated equally; procedural: the rules should apply in the same way to everyone; retributive: penalties must apply equally to all.
